The Ultimate Guide to IRA Rollovers for 2023

An IRA rollover allows you to move your retirement savings from one IRA account to another without tax penalties. Doing an IRA rollover correctly is important to avoid paying taxes and penalties. Here is a comprehensive guide to everything you need to know about IRA rollovers for 2023.

What is an IRA Rollover?

An IRA rollover is when you withdraw or transfer funds from https://preciousmetalsira.gold/ and redeposit them into another IRA within 60 days. The IRS allows you one rollover per 12-month period for each IRA you own. Rollovers are often done to transfer funds between IRA providers or to consolidate multiple IRAs into one account.

There are no taxes or penalties as long as you complete the rollover within 60 days. The funds must be deposited into the new IRA account within 60 days from the date you received the distribution. If you miss the 60-day deadline, the withdrawal becomes taxable income for that year. You would also face a 10% early withdrawal penalty if you are under the age of 59 1/2.

Types of IRA Rollovers

There are a few different types of IRA rollovers:

• Direct rollover – The funds are transferred directly between IRA custodians. No funds are distributed to you.
• Indirect rollover – You deposit funds received from an IRA distribution into a new IRA within 60 days. The custodian will withhold 20% for taxes until you redeposit into a new account.
• Trustee to trustee transfer – Funds go directly from one IRA trustee to another without you receiving the distribution. There is no 60 day time limit.
• Inherited IRA rollover – Funds from an inherited IRA can be rolled over into a new inherited IRA account.
• 401k to IRA rollover – Funds can be rolled over from a 401k, 403b, or other employer plan into a rollover IRA account.

Why Do an IRA Rollover?

There are several reasons you may want to do an IRA rollover:

• Consolidate multiple IRAs into one account
• Switch IRA providers
• Transfer assets into an IRA from a 401k or other qualified retirement plan after leaving an employer
• Want new investment choices offered by another IRA provider
• Dissatisfied with customer service or fees at your current IRA custodian
• Rebalance your investment portfolio into new IRA accounts

Before initiating an IRA rollover, make sure you understand any fees your current custodian may charge for transferring assets out and any fees the new custodian may charge for the rollover. Also consider account minimums and investment options at potential new IRA providers.

How to Do an IRA Rollover

Here are the basic steps for how to complete an IRA rollover:

1. Open a new IRA account with the provider you want to transfer funds into. Make sure your account is established and ready to receive the rolled over funds.
2. Initiate the process with your current IRA provider by filling out their distribution form. Indicate this is for a rollover and the amount you want distributed.
3. Your current custodian will issue a check payable to the new custodian for your IRA. This is typical for indirect rollovers. Or they can transfer the funds directly via a trustee to trustee transfer.
4. Once you receive the check, you have 60 days to deposit it into the new IRA account. If the check is made out in your name, the new custodian will ask you to fill out their rollover deposit form.
5. If taxes were withheld from the distribution, you’ll need to make up the difference from other sources and deposit the full amount into the new IRA within 60 days.
6. Report the rollover to the IRS by filling out Form 8606 as part of your tax return for the year. This shows you completed the IRA rollover properly.

Watch Out for Rollover Restrictions

The IRS restricts certain types of IRA to IRA rollovers:

• You can only do one 60 day IRA to IRA rollover per 12 month period. This applies across all your IRAs.
• Rollovers from traditional IRAs to Roth IRAs (conversions) are allowed, but can only be done once per year.
• If you have inherited an IRA, there are special rollover rules to follow. Make sure to understand these before initiating a rollover.
• SEP IRAs and SIMPLE IRAs have restrictions around rolling over funds into traditional and Roth IRAs.
• 401k plan funds rolled into an IRA cannot be rolled back into a 401k or other employer plan.

Talk to your tax advisor or IRA custodian if you have any questions about rollover restrictions or eligibility. Following the rules carefully is key to avoiding taxes and penalties.

Rollover Pitfalls to Avoid

While IRA rollovers can be straightforward, there are some common pitfalls to avoid:

• Missing the 60 day deadline to deposit funds into the new IRA. This will make the entire withdrawal fully taxable income. Set calendar reminders to ensure you meet the deadline.
• Cashing out the check instead of depositing into new IRA. The check is meant to be deposited. Cashing it makes the full amount taxable.
• Not making up the 20% withheld if you do an indirect rollover. You’ll need to deposit the full original amount into the new account from other sources.
• Doing multiple indirect rollovers within 12 months. This violates the one rollover rule and the second will be taxed as income.
• Forgetting to report the rollover. You must show the IRS you completed the rollover properly by filling out Form 8606.
• Rolling over an inherited IRA into your own IRA. This will invalidate the tax benefits of the inherited IRA.
• Attempting to roll 401k funds back into an IRA after already completing a rollover. This is not allowed.

Consult with a qualified tax advisor or IRA specialist if you are uncertain about any aspect of the rollover process. They can help guide you through the steps while avoiding common mistakes.

Benefits of Working with an IRA Rollover Specialist

Given the complex IRS rules around IRA rollovers, it can be extremely helpful to work with an IRA rollover specialist. Here are some key benefits:

• They will advise you on which type of IRA rollover is best for your situation.
• They can coordinate the process and paperwork between your old and new IRA custodians.
• They will ensure the rollover meets IRS requirements so you avoid taxes or penalties.
• They can educate you on the differences between IRA providers and investment options.
• They can assist you with consolidating multiple IRAs into a single rollover IRA.
• They can help facilitate rolling over employer retirement funds like 401ks into an IRA.

A qualified IRA rollover specialist can provide guidance and support while giving you peace of mind that all IRS rules are being followed properly. Their expertise can be well worth the cost when handling large dollar IRA rollovers.

The Bottom Line on IRA Rollovers

When done correctly, an IRA rollover can allow you to transition your retirement savings between providers or consolidate multiple accounts without tax penalties or hassles. But missing an IRS deadline or restriction can result in significant taxes and penalties on your savings.

Be certain you understand the various rollover rules before moving your IRA funds around. If in doubt, seek guidance from a qualified tax advisor or IRA specialist. Taking the time to do an IRA rollover right will ensure you don’t put your retirement funds at risk.